The crossover between private accommodations and traditional hotels is raising the stakes for the hospitality lodgings industry.
The real estate industry is being completely upended these days. Online listing platforms such as Redfin and Zillow are pushing realtors aside to directly broker property sales themselves. Hotels such as Marriott are launching home-sharing platforms. And original home-sharing disruptors such as Airbnb are becoming hoteliers. Before we know it, all of these will converge again, creating an entirely new eco-system.
iBuying: Listing Platforms Converge into Real Estate Brokers
Property buyers and sellers have traditionally relied on live real estate agents to list and show a home, and to close the transaction. Now, power is shifting away from these old-school middlemen thanks to the proliferation of online and mobile real estate listing platforms.
Redfin and Zillow are just two property listing sites that have decided to leverage mobility technology, big data, and digitization to become brokers themselves. Their listing platforms attract millions of consumer traffic daily, so they know who exactly is interested in buying or selling, and at what price. This generates tons of valuable market data that can be repurposed into bids & offers with the help of artificial intelligence.
The two listing giants are even going so far as to take on the role of market-maker or home-flipper, depending on what you want to call that activity. Zillow started an “instant offers” business last year, whereby the Seattle-based company makes an offer to a seller with the intent of taking on inventory. If the offer is accepted, Zillow buys the house, fixes it up, and resells it. For assuming that risk and facilitating a quick easy transaction for the seller, Zillow earns a fee. It hopefully also makes money off the spread between what it pays to purchase the property, and how much it sells the property for.
We’re still in the early days of this experiment. If the model works, it would be a win-win for both the consumer and the iBroker. Traditionally, buyer and seller agents split a 5% to 6% commission on the price of a home (which usually comes from the seller’s proceeds). In its iBuying business, Redfin takes a 2% cut for listing the property and facilitating the deal. Similarly, Zillow aims to make just 2% to 3% on transactions at maturity. Given the huge size of the potential market, Zillow expects to generate $20 billion annually from its iBuying business within three to five years.
As noted in MRP’s DIBs report titled Proptech is Uberizing the Real Estate Industry, there several pure-play startups competing with Redfin and Zillow. These include US-based Opendoor, UK-based HouseSimple, Knock, Offerpad and Perch, among others. While the growing competitiveness of the space will pressure iBuying margins, Redfin and Zillow enjoy some sizable advantage as established Proptech market leaders.
Lodgings: Home-Sharing Moves into the Hotel Business
Meanwhile, Airbnb and Marriott International, the biggest names in their respective home-sharing and hotel industries, are each making waves with the former’s unveiling of a hotel-inspired type of accommodation and the latter’s launch of a vacation-rental platform.
Airbnb, the home-sharing giant, has partnered with RXR Realty, the New York Realty giant, to convert part of 75 Rockefeller Plaza into a hotel scheduled to open in 2020. The hotel will offer over 200 high-end apartment-style suites, each with a fully stocked kitchen. The target market is business travelers who want a home-style lodging with hotel-level service and without the uncertainty of renting someone else’s place.
Renters of these units will be able to book a stay only through Airbnb’s global platform. That allows Airbnb to upsell its growing “Experiences” platform which arranges cultural experiences such as history tours, local entertainment or shopping trips, just as a hotel concierge would, and sometimes even with celebrities. In 2017, actress Sarah Jessica Parker (SJP) hosted one of these Experiences. Playing on her character’s expensive shoe-shopping habit in the HBO show, Sex and the City, SJP took four guests shopping for shoes at Bloomingdales before sending them to the ballet. The booking fee for that Airbnb Experience (excluding cost of shoes) was $400 per guest, and proceeds were donated to the New York City Ballet.
Airbnb’s rationale for expanding into the hotel market is that its original client base, millennials, are becoming older and more affluent. Accordingly, they want better amenities and services, which the home-sharing company intends to give to them.
Lodgings: Hotels Tap into Home-Sharing
Over the past 10 years, Airbnb has grown into the world’s largest online marketplace for lodgings. In that time, the company’s listings have grown more than 100% a year—Airbnb now boasts six million listings in 81,000 cities worldwide—and that dramatically larger supply of accommodations has significantly affected hotels’ room prices and revenues. A study found that a 1% increase in Airbnb’s supply lowered hotel revenues between 0.02 and 0.04%. The lost revenues came mainly from economy and luxury hotel listings.
Now, Marriott International, a traditional hotelier, has decided to fight back by jumping into the home-rental market currently dominated by Airbnb. With the launch of Homes & Villas by Marriott International platform, the world’s biggest hotel operator plans to offer 2,000 premium and luxury homes spread across more than 100 destinations around the globe. Travelers can choose from a wide range of high-end lodgings such as a four-bedroom cottage in California wine country, a six-bedroom villa in Sorrento, Italy, or an oceanfront village complete with a butler and private beach in Anguilla.
The venture diverges from the traditional hotel business model in many ways. For example, Marriott is neither acquiring the properties, nor servicing or even cleaning them. Marriott is simply acting as a booking agent for property owners who have the assets, no different than booking platforms such as Expedia, Booking.com and Airbnb.
The crossover between private accommodations and traditional hotels is only going to intensify. As one expert stated, “While I don’t think that we’ll ever see Airbnb and Marriott become one and the same, if you were to create a sort of Venn diagram of short-term rentals and hotels, the area of overlap just seems to expand with each new development on both sides.”
Indeed, few niches within the short-term rental sector are growing as quickly as serviced apartment-hotels (aparthotels), with startups like Lyric, Sonder, WhyHotel and the Guild, attracting significant venture capital of late, including from the likes of Airbnb.
Source material for today’s Market Insight…
When Hotels Meet Short-Term Home Rentals
Marriott International dipped its toe into the burgeoning home-sharing business last year during a pilot program in Europe, under its Tribute Portfolio Homes brand. The company is now jumping in to the competitive short-term rental market in a much bigger way, as it launches Homes & Villas by Marriott International, offering 2,000 premium and luxury homes in more than 100 destinations around the globe, including the U.S.
Marriott’s entry into the home-sharing market comes as Airbnb expands its offerings including the March acquisition of HotelTonight, a hotel-booking platform aimed at last-minute trip options at boutique and independent hotels. Moreover, Airbnb recently expanded Airbnb for Work, its platform for supplying rental space to companies and professionals and also acquired Gaest.com, an online marketplace that provides meeting locations for short-term rentals.
Brian Ferdinand, managing partner of CorpHousing Group, a national short-term rental operator, compared Marriott’s launch of its home-rental initiative to booking platforms like Airbnb, Expedia and Booking.com. “They are not going out and acquiring real estate,” Ferdinand said of Marriott. “They are not actually servicing them. They are not actually cleaning them…They are acting as a booking agent for the people who do have the assets.”
Homesharing is in Hyatt’s rearview mirror
Homesharing has been top of mind following Marriott International’s launch of a large-scale vacation rental platform earlier this week.
Hyatt had been active in the homesharing space, investing in short-term vacation rental startups Onefinestay and Oasis in 2015 and 2017, respectively. Both forays were short-lived, however, with Onefinestay being acquired by Accor in 2016 and Oasis joining the fold of vacation rental management company Vacasa last year.
While Hilton has eschewed homesharing, Hyatt does have a limited presence in the sector. The company currently has a small number of serviced apartments in India and the Middle East and also has a U.S. portfolio of professionally managed vacation rentals under its Destination Hotels umbrella, which Hyatt acquired as part of its takeover of Two Roads Hospitality late last year.
Hyatt reported systemwide revenue per available room (RevPAR) growth of 1.8% for the first quarter. U.S. RevPAR was down 0.3%, weighed down by softness in the select-service category. The group’s total revenue increased 12% to $1.24 billion.
Startups and hospitality giants are embracing “apartment hotels”
The lines between home-sharing and traditional hospitality lodgings are blurring. Startups like Domio and major hospitality companies including Marriott International are ramping up professionally managed “apartment hotel” operations in residential and commercial buildings, according to the Wall Street Journal.
It’s an attempt to cater to guests who want a full apartment or apartment-style lodging, but don’t want to deal with the uncertainty of renting someone else’s place. Domio, along with others like Lyric and Sonder lease floors and then stock apartments with high-end furnishings and amenities. New York-based Domio is now renting out full apartments in New Orleans at around $149 per night. Those apartments have kitchens, washing machines, and access to a roof-top pool.
The industry is taking notice. Lyric recently closed a $160 million fundraising round led by Airbnb. The biggest player in the spacem Airbnb initially wanted Lyric to list exclusively on Airbnb’s website, but that was not part of the final deal. Airbnb itself partnered with RXR Realty to convert 10 floors at 75 Rockefeller Plaza in New York into short-term rentals. Marriott announced last week that it would operate 2,000 high-end homes in 100 markets across the Americas and Europe.